Support for Prime Minister Putin’s United Russia party fell
to about 50 percent in the Duma elections, from 64 percent in a
2007 vote, the electoral commission said on its website after 72
percent of the votes had been counted. Putin’s disapproval
rating rose to the highest since he entered office in opinion
polls last month.

Putin’s party “will still have the majority in the
parliament, if there was some uncertainty, it now goes away,”
Mattias Westman, managing director of Prosperity Capital, which
has about $5 billion under management and calls itself the
largest Russia-focused equity investor, said by phone from
London yesterday. “Many politicians have been thrown out of
their offices throughout the world following the crisis, while
United Russia managed to keep the majority in the parliament.”

Futures on the country’s dollar-denominated RTS index
expiring in December fell 0.8 percent to 153,065 by 2:50 p.m. on
Dec. 2 as the Bloomberg Russia-US 14 Index of Russian companies
traded in the U.S. lost 0.6 percent to 99.88, paring last week’s
advance to 10 percent. Moscow’s 30-stock Micex index, which is
down 11 percent this year, trades at 5.3 times analysts’
earnings estimates for member companies, the cheapest of the 21
emerging-market stock indexes tracked by Bloomberg.

‘Slight Positive’

Confirmation Putin’s party is still in control should be a
“slight positive” for Russian stocks in trading today, said
Westman, who likes consumer and energy companies such as OAO
Gazprom, the world’s largest natural gas producer, and OAO
Magnit, Russia’s largest food retailer.

The result was the worst for United Russia since 2003, when
the party garnered 37.6 percent of the vote. Putin, a former KGB
officer, announced in September that he would run for a third
term as president, swapping jobs with President Dmitry Medvedev,
who succeeded him in 2008 because of a constitutional limit on
serving more than two consecutive terms.

The results of yesterday’s elections don’t “change the
investment equation” for Russia, Ian McCall, a managing partner
at Geneva-based Quesnell Capital SA, which manages the
equivalent of about $116 million of emerging-market assets, said
in a phone interview yesterday.

“United Russia has given us stability for two terms and we
will get a third term of stability,” he said. “The weakening
of their position is also a good sign. It is a sign of
democracy.”

‘Cheap’ Gazprom

Gazprom, Russia’s gas export monopoly, fell 0.4 percent on
Dec. 2 to $11.76 in New York, the biggest drop since Nov. 25.
The company’s American depositary receipts climbed 14 percent
last week, snapping two weeks of declines. Gazprom shares in
Moscow gained 1.1 percent to 183.32 rubles, or the equivalent of
$5.93. One Gazprom ADR represents two ordinary shares. Stock in
New York has jumped 23 percent this quarter.

Putin’s disapproval rating is the highest since he took
office in 2000 and opinion polls signaled a 65-seat reduction in
United Russia’s representation to 250 of the 450-seat Duma,
according to surveys by Russia’s Levada Center last month.

“It’s not really Russian factors, its uncertainty over
European problems that drive the Russian markets now,” Westman
said.

“Russian companies are continuing to perform very well,”
he said. “Gazprom is extremely cheap.”

Moscow-based Gazprom has a price-to-earnings ratio of 3.4,
compared with nine for Houston-based oil company ConocoPhilips,
10.6 for PetroChina Co., that nation’s second-largest oil
trader, and 5.9 for London-based BP Plc, according to data
compiled by Bloomberg.

Brent Gains

Oil, which along with gas makes up about 17 percent of
Russia’s economy, climbed to a two-week high on Dec. 2 and had
its first weekly gain in three on concern tensions between Iran
and the West will threaten shipments from the Organization of
Petroleum Producing Countries’ second-largest producer.

Crude for January delivery climbed 0.8 percent to settle at
$100.96 a barrel on the New York Mercantile Exchange, the
highest settlement price since Nov. 16 and bringing its advance
in the week to 4.3 percent. Oil prices in New York have jumped
27 percent this quarter, bound for the best quarter since the
three months to June 30, 2009. The Bloomberg Russia-US 14 index
has gained 16 percent in the fourth quarter.

MTS Debt Load

ADRs of OAO Mobile TeleSystems, Russia’s largest mobile-phone operator known as MTS, lost 3.8 percent to $16 on Dec. 2,
the biggest one-day drop since Nov. 9. The company’s shares on
the Micex declined 1.9 percent to close at 209.02 rubles, or the
equivalent of $6.76. One MTS ADR is equal to two ordinary
shares. The ADRs climbed 3.4 percent in the week.

MTS acquired CJSC Sistema-Inventure, which owns 29 percent
of Moscow City Telephone Network, for 10.6 billion rubles ($342
million), the Moscow-based company said in a Dec. 1 statement on
its website. As part of the deal, MTS also agreed to repay 10.4
billion rubles of CJSC Sistema debt by the end of the year owed
to AFK Sistema, CJSC Sistema’s former owner and the controlling
shareholder in MTS, the statement said.

“While the price of the acquisition seems adequate, MTS
had to take on a debt load equal to the purchase price, and this
is concerning the investors,” said Kirill Bakhtin, an analyst
at Moscow brokerage TKB Capital.

Lukoil Climbs

OAO Lukoil, Russia’s second-largest oil producer, rose for
the fourth day in five after Deutsche Bank AG and VTB Capital,
the investment banking arm of the nation’s second-largest lender
VTB Group, reiterated “buy” recommendations on the stock and
Moscow brokerage Renaissance Capital maintained a “hold”
recommendation.

Lukoil forecasted an average 3.5 percent increase in
production during the next 10 years in a spending and strategy
plan released on Dec. 1.

ADRs of Lukoil rose 1.2 percent on Dec. 2 to $55.46,
posting a 7.5 percent weekly gain after four weeks of declines.
On the Micex, Lukoil climbed 0.1 percent to 1,705.50 rubles, or
the equivalent of $55.11. Each of Lukoil’s ADRs is equal to one
ordinary share.

VTB Capital set Lukoil’s 12-month target price at $136.30.
more than three times its current level.

Tim Ash, head of emerging markets at Royal Bank of Scotland
Group Plc and Viktor Szabo, a money manager at Aberdeen Asset
Management, say that the loss of United Russia’s so-called
supermajority, which gave them power to amend the constitution,
will spur increased government spending as Putin strives to
shore up support before running for president in March. Westman
disagrees, saying the government will stick to its budget
targets.